Four Market-Beating Dividend Aristocrats

Last week I highlighted some of the most interesting issues of Investment of the Week from the last six months. This week, I have highlights from July through last December (when we began Investment of the Week).

On July 5, I wrote about an unusual new investment: bitcoins. Bitcoins reached the height of their popularity this June and July, as a flurry of blog and mainstream news articles raised awareness of the digital currency among a broader audience. Their price followed right along, peaking at $29.57 per bitcoin on June 9. Since then, the price has declined, creating a price chart that looks just like that of a growth stock after the romance phase is over. Wired magazine provided a nice update on the currency in its December issue, complete with said price chart. Click here to read the issue.

For most of April and May, I was writing from Europe, where I visited nine countries in about two months. On June 7, I wrote about the Berlin Airlift, an incredible operation that provided Soviet-blockaded West Berlin with all of its food, fuel and supplies, by air, for 15 months. In addition to being an all-around inspiring story, the Airlift demonstrated the power of great management. Click here to read the issue.

In the May 31 issue, I compared the hullaballoo surrounding Harold Camping’s May 21 doomsday prediction (remember that?) to investors’ tendency to give in to fear. I also weighed in on the value of social networking in the wake of LinkedIn’s (LNKD) IPO. Click here to read the issue.

On May 24, I was in Sweden, and wrote about some of Scandinavia’s more peculiar laws. In Sweden, you can only buy liquor from government-run liquor stores, except for beer that is less than 3.5% alcohol by volume. In Denmark, on the other hand, you can buy beer anywhere, anytime … but most other stores are open very limited hours. Click here to read the issue.

On May 10, having recently visited the Netherlands, I wrote about the Dutch tulip mania of the 1630s, and its eerie similarity to recent investment bubbles. This story of one of history’s most infamous investment bubbles–and its collapse–should be required reading for all investors. If there’s one issue on this list you go back and read again, make it this one. Click here to read the issue.

On May 3, I was in Amsterdam, and biking to work with thousands of other commuters inspired me to write about gasoline taxes, fuel-efficient cars and oil alternatives. Click here to read the issue.

On April 26, I wrote about the different ways Germans and Italians behave at crosswalks–and how that behavior reflects the division between the recipients and providers of European bailouts. Click here to read the issue.

On April 19, I wrote about the incredible global connectivity we enjoy today, and how occasionally tuning some information out can help you become a better investor. Unfortunately, moving to Vermont, as famous contrarian Humphrey Neill did in the 1950s, probably won’t be enough anymore–unless you move to a cabin without Internet access. Click here to read the issue.

On April 12, I told readers why I expect more stocks to begin paying dividends, and shared the names of a few Dividend Aristocrats that had been recommended in the Digest recently. Several of those stocks have been great names to hold over the last eight months, and I review a few of them at the end of this email. Click here to read the issue.

On March 29, I wrote about one of the best books I’ve read this year: The Invisible Gorilla. The book is about the ways our minds deceive us, from harmless tendencies like perceiving faces on pieces of toast, to more dangerous habits like inferring causation where there is none. Click here to read the issue.

March 22’s issue was about another interesting book I’d just read, Ken Jenning’s Brainiac, and the world of trivia it explores. (By the way, for those who like this sort of thing, Jenning’s latest book, Maphead, is also very good. I didn’t write about it here, but I thoroughly enjoyed it, and I enjoy maps even more now that I’ve read it.) Click here to read the issue.

In the March 15 issue, I briefly addressed the changing landscape of print journalism. The New York Times was just about to put up its pay wall, which, by most accounts, is working out pretty well so far. Click here to read the issue.

On March 8, I wrote about Warren Buffet’s least-heeded maxim: Confidence in the future of America. It’s a viewpoint that is neither expressed nor believed in often enough. Click here to read the issue.

On March 1, I wrote about the Arab Spring and the likelihood that its democratic advances would be followed by a period of instability, as they have. However, I also compared (loosely) a chart of the progress of democracy to a long-term chart of the Dow, which both have upward trends. Click here to read the issue.

The February 15 issue was a unique one, comparing the “sport” of skee-ball (which I play competitively) to investing. They have some surprising similarities. Click here to read the issue.

The February 8 issue was titled “Bull Markets Do Not Die From Old Age.” In response to several contributors who were becoming skeptical of the market’s ongoing rally (then five months old), I quoted InvesTech Market Analyst Editor James Stack, who wrote that bull markets do not die from old age, and that, “In historical terms, this bull market might still be young. At 22 months of age, it won’t celebrate its second birthday until March 9. And 80% of the bull markets during the past 80 years have lived beyond their second birthday. Unfortunately, the survival rate starts dropping after that. Barely half of these past bull markets lived to see their third birthday, and only 33% extended much beyond four years.” In hindsight, February 8 was indeed a bit early to start running scared. Yes, the market’s strength and consistency ended a couple weeks later, but the market–and strong stocks–continued to make intermittent gains until May, when the high for the year was reached. Click here to read the issue.

February 1 was an interesting issue that focused on historical and modern demonstrations of national power–from the Eiffel Tower to the Burj Khalifa. Click here to read the issue.

The January 25 issue dealt with the ideas of efficiency and customer service, with Amazon.com (AMZN) as the shining ideal of both. Click here to read the issue.

In the January 18 issue, I wrote about price discrimination, and the ways it can both help and hurt customers and companies. I also solicited feedback on the most extreme example of price discrimination, airline tickets, some of which was included in the January 25 issue linked above. Click here to read the issue.

The January 11 issue was the most controversial of the whole year. I wrote about equine slaughterhouses as just one example of the unintended consequences that well-intentioned legislation can have. Drawing most of my information from a Wall Street Journal article on the subject, I raised the ire of some horse lovers who saw things differently than the experts I quoted. (Yet I received not a single criticism for suggesting that legalizing marijuana would have several benefits.) Click here to read the issue.

In the January 4 issue, I drew on the Top Picks for 2011 submissions, among other sources, to predict 10 likely investing trends for 2011. Obviously, the market’s overall tempermental-ness this year has made it difficult to call most sectors “hot,” but many of the trends were quite visible nonetheless. I’ll revisit those predictions, and make some for 2012, later this month, as our experts Top Picks for 2012 begin rolling in. Click here to read the issue.

In the December 21, 2010, issue, I explained cloud computing for novices. Cloud computing is still a growing trend, and will continue to be one for a long time (until it become synonymous with “regular” computing, I expect.) If you’re still not sure what it is, click here to read the issue.

Finally, on December 14, 2010, we sent out the very first issue of Investment of the Week, which I dedicated to discussing both trends in general and one of the day’s hottest trends: investing in gold. The price and popularity of gold has continued to rise since then, driven by investors’ uncertainty, fear and pessimism. As I said then, “once they’re under way, trends tend to last longer, and go further, than we expect.” But also as I said then, “The price of gold CAN go down… and someday it will.” That last bit is still very true (and if you’re skeptical, go read the issue about the tulips.) Click here to read the first issue.

That’s all of them. I hope this year brings just as many interesting explorations–and maybe a few more profits.

I mentioned earlier that several of the best-performing stocks featured in Investment of the Week over the past year came from the same issue on April 12 that featured several Dividend Aristocrats. Dividend Aristocrats are stocks that have increased their dividends every year for at least 25 consecutive years. They’re primarily large-cap, relatively stable blue-chip stocks. Because of their reputation for steady returns, income investors often seek out Dividend Aristocrats to serve as the core of their income-generating portfolios.

In the eight months since these stocks were recommended, the Dow Jones Industrial Average has gained no value–as I write this it is down just over 1% since April 12.

These four dividend aristocrats, on the other hand, have not only gained value, they have also all made dividend payments since then.

The first, The McGraw Hill Companies (MHP), has paid three dividends of 25 cents each. If you’d bought at 39 on April 12, you’d have received 75 cents, for a yield of about 2% over the past eight months. Plus, the stock’s price has increased 10%, from 39 to 43.

Back in April, Patrick McKeough, editor of the Wall Street Stock Forecaster, recommended MHP. McKeough still rates the stock a buy.

McGraw-Hill is planning to break up into two companies next year: the company’s Standard & Poor’s division and other financial-information providers will become McGraw-Hill Markets, while the textbook-publishing side will become McGraw-Hill Education. McKeough sees the split in a positive light, writing in October: “Break-ups like this tend to work out well for investors, because the total value of the two new companies usually exceeds the value of the former parent over time.”

This year marked the 38th consecutive one in which MHP raised its quarterly dividend.

The second Dividend Aristocrat from April’s issue is The Chubb Corp. (CB), an insurer. The Chubb Corp. has paid two dividends of 39 cents since April, as well as gaining 10% in price. It is now trading at 68, above the target price of $65 that John Eade, an analyst for the Argus Weekly Staff Report, gave it back in February. In October, Eade raised his target to $75, and reiterated his BUY rating on The Chubb Corp.

The third outperformer since April is Abbott Laboratories (ABT), always a favorite among income investors. Since April 12, ABT has paid three dividends of 48 cents each and increased in price from 50 to 54, approximately 7%. Abbot was recommended by Ingrid Hendershot, editor of Hendershot Investments, as a Dividend Digest Top Pick for 2011, so we’ll have an update on the stock in our Top Picks for 2012 issue, coming out January 11. (If you’re not a Digest subscriber, but are thinking about becoming one, I encourage you to take action before January so you can receive this collection of the experts’ single best investment ideas for next year.)

As he pointed out in his recommendation: “JNJ has been paying a dividend since 1944 and has increased it annually for over 47 years. … For every share you might have bought in 1979 at $0.85, you would now be receiving $2.16 in annual dividends, or more than 2.5 times your initial investment–each and every year–and growing to boot! Going forward, you can be sure we do not anticipate this kind of supercharged income growth. However, our analysis indicates that Johnson & Johnson should be able to continue to generate positive cash flow from its stable of products and continue to pay and increase its dividends for years to come. As long as that’s the case, and the price of the stock remains reasonable by our valuation measures; we’ll continue utilizing the dividend and dividend growth attributes of JNJ to provide growing income to our clients.”

That’s as true today as when he wrote it–that’s the beauty of owning dividend aristocrats. Since April, JNJ has gained approximately 7% in price, and paid out $1.71 in dividends, for an eight-month yield (based on April 12th’s closing price of 60) of about 3%.

There’s certainly something to be said for buying and holding this type of steady, dividend-paying stock. It certainly would have worked better than most strategies this year. If you think this approach might be for you, you might want to consider subscribing to the Dick Davis Dividend Digest, where all these stocks were recommended first. Click here to learn more!

Latest Videos

Upcoming Events

• How to Make Money in the Age of US-China Rivalry + 3 Global Stocks to Buy NowFREE Webinar with Carl Delfeld, Chief Analyst of Cabot Global Stocks Explorer
Wednesday, October 23 at 2:00 PM ET |Learn More

Reviews

“From previous editions I picked five winners because of your detailed reports of these companies. Thanks!”

-H.G. Jaeger

Market Update

From Cabot Top Ten Trader

To say it’s been a topsy-turvy week has been an understatement. The rotation that we started to pick up on a couple of weeks ago was unleashed late last Friday and the first couple of days of this week, with just about any stock and sector that’s enjoyed a good run this year coming under pressure—including more than a few names that flashed abnormal intermediate-term action. Right now is basically the definition of an environment where you should take things on a stock-by-stock basis. If your loss limits are tripped, sell. If a decent winner you had is back to breakeven, put in a tight stop. And if you have a good-sized winner that’s tripped its stop, sell at least some of your shares, if not all.